Actually, a small percentage of Qwest's (Q) 30,000 unit order have been reflected in Q1 results. We estimate that several hundred units were shipped ahead of the precursor DEFIMNET deployment, which was completed subsequent to quarter end. Even with a small number of shipments, revenue for the quarter jumped by 124% to $0.44 million from $0.19 million for the same period for the previous year.
Gross margins were reported at 73%, which Management believes to be a typical range going forward. This is good news for investors as the Qwest deployment begins to take off. Management expects that a vast majority of the Qwest's first order should be shipped by the end of the summer, with close to 10% of the order already shipped only three weeks subsequent to completion of the DEFIMNET roll-out.
An Interesting Market Development: The Swine Flu Pandemic has created more urgency among U.S. government agencies to get government employees set up to work from home. The TruOffice deployments on the DEFIMNET fits under several "emergency preparedness" initiatives that have become more prominent as the cases of Swine Flu have increased. Route1 should benefit from increased velocity of deployment, as well as from more potential demand from U.S. Government agencies thoughout the year.
Don't Forget Europe: The Company has had a couple of reference deployments operating in Europe for several quarters. Subsequent to Q1, we may see a marked increase in activity from Europe as governments in this region begin to deploy relatively significant numbers of units. There may be a possibility of regional distribution agreements (similar to Qwest) by the end of fiscal 2009.
Fly in the Ointment: The Company has reported a skinny balance sheet at the end of Q1, with $0.75 million and a high quarterly burn of over $1.4 million. Of the $1.4 million, approximately $0.5 million could be categorized as one-time expenses, leaving $0.85 million of operating burn. Notwithstanding, this presents forward risk. Offsetting the future burn is a portion of cash received from the approximately $2 million DEFIMNET deployment, along with cash received from the rolling Qwest purchase order. In the short-term Management will be required to manage cash diligently as shipments ramp.
Bottom Line: The Company is finally now in the middle of the ramp that investors have been waiting for patiently for many quarters. The new challenge is that growth will need to be managed with a skinny balance sheet.
Disclosure: I do not own shares of Qwest or Route1.
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